Canadian oil and gas producers and the governments they pay royalties too are not benefiting as much as they could be from improving commodity prices.
A new report from Deloitte says that concerns over transportation bottlenecks to the U.S. market have increased the historic price differential between Canadian WCS and U.S. WTI oil, while infrastructure issues in Canada have also created extreme volatility in natural gas prices between AECO and Henry Hub.
Deloitte forecasts that in 2018, WTI will average US$55/bbl while WCS will average US$36.19/bbl. Meanwhile, Henry Hub natural gas pricing is expected to average US$2.80/Mcf compared to US$1.56/Mcf for AECO. This compares to 2017 numbers of US$50.84 for WTI, US$39.21 for WCS, US$2.99 for Henry Hub and US$1.67 for AECO.
“Canadian oil prices lagged behind those in the United States during 2017 largely due to increased U.S. production and possible transportation difficulties getting Canadian oil into that market,” Deloitte’s Andrew Botterill said in a statement.
Canadian natural gas prices, which fluctuated considerably in 2017, recovered somewhat in the final quarter of the year as transportation systems resumed operating at full capacity after several maintenance projects during the year, Botterill said, adding that more price fluctuations could occur in the summer of 2018 when new maintenance projects are expected to take place.
“While increased natural gas production has allowed the U.S. to grow its gas export market by 31 per cent in 2017, Canada’s limited ability to access new markets has resulted in low AECO pricing,” he said.